MNP: Companies need to be vigilant against internal fraud

16 March 2021 2 min. read
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As companies look forward to recovery, they need to assess their exposure and approach to increased fraud risk, according to a recent article from accounting and consulting firm MNP.

The Covid-19 pandemic has forced companies to make numerous changes in response to new economic and social realities – including remote working, increased technology usage, and finding new supply chain partners. These changes have created greater opportunities for fraudsters.

Fraud represents five percent of business revenue on average, with corruption (bribery, conflict of interest) the most common form in every global region, according to the Association of Certified Fraud Examiners’ (ACFE) 2020 report.

MNP recommends that companies boost their fraud prevention posture. The first step is updating the organization’s risk assessment and examining what changes may have created new fraud risks. The assessment should be conducted by a cross-functional team that includes fraud experts, such as from a friendly local consulting firm.

MNP: Companies need to be vigilant against internal fraud

The team should look at how money moves to and from the business, what authorization is required in transactions, how someone could intercept transactions, and how contracts are made, among other areas. The company should then implement measures to reduce risk in identified areas.

Emphasis should also be placed on maintaining ethical behavior within the company culture – with recruitment and work performance management actively encouraging ethics.

Internal misconduct generally increases in times of economic turbulence. Sixty-nine percent of companies reported an increase in regulatory breaches and investigations in 2020 amid the pandemic’s economic fallout, according to a recent report from FTI Consulting.

The higher pressure to show short-term financial gain could incentivize some employees to behave dishonestly. “That pressure, absent a strong emphasis on ethics, increases your organization’s risk of fraud,” MNP notes.

Fraud risk should also be addressed with internal controls and whistleblowing hotlines. Controls such as fraud awareness training, due diligence on new suppliers, and enhanced cybersecurity are important avenues.

One of the most important measures to identify fraud is a confidential whistleblower hotline. Tips are the most common way to detect enterprise fraud, with 43% of fraud schemes detected by tips – and half of those tips coming from employees – according to the ACFE.

MNP recommends that suspected fraud incidents should be investigated thoroughly and professionally. “Improper investigations pose legal and reputational risks, minimize the opportunity for recovery of losses, and have a negative impact on employee morale,” the firm says.

Lastly, fraud risk management isn’t a point-in-time exercise, but a continuing project. Firms should seek to have ongoing monitoring and new assessments when the business significantly grows or changes.